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Suits by Suits* is a legal blog focused on disputes involving companies and their executives.

*we do not always wear, and oftentimes discourage the wearing of, an actual suit.

Sleep On It: Employee’s Quick Response Hurts Termination Claim

When employees and employers are approaching the end of an employment relationship, they should consider their existing rights and how their conduct may impact those rights. A recent decision from the Minnesota Court of Appeals demonstrates how one hasty email can change everything.

Beginning on January 1, 2010, LifeSpan of Minnesota, Inc. employed the plaintiff in the case, Mark Sharockman, as its chief financial officer and executive vice president. Mr. Sharockman’s three-year employment agreement with LifeSpan provided, among other things, that he would receive annual pay increases that were at least equal to the average pay increases granted to the other two executive officers.

In December 2010, the LifeSpan board of directors approved a 5% pay increase for Mr. Sharockman, to be applied for 2011. At the same time, the board of directors awarded the other executive officers pay increases of 5% and 25%. Based on Mr. Sharockman’s employment agreement, he would have been entitled to an increase that was the average of the increase for the other officers (15%) in 2011. In June 2011, LifeSpan asked Mr. Sharockman to consent to an amendment of his employment agreement and accept the nonconforming pay increase. Mr. Sharockman refused.

Another 6 months passed. On December 12, 2011, Mr. Sharockman sent an email to the CEO demanding that LifeSpan pay him the additional salary required under the terms of the employment agreement (the “breach notice”). At a meeting with the company’s CEO on December 15, 2011 to discuss the matter, Mr. Sharockman advised the CEO that he was interviewing for another job. The CEO and Mr. Sharockman disagreed over whether Mr. Sharockman actually tendered his resignation during the meeting, but it was undisputed that the other potential employer had notified Mr. Sharockman that he was the final candidate for its job shortly before the meeting began. Mr. Sharockman received a written offer from the other employer the following day and began to negotiate the terms of his new employment, which included a higher rate of pay.

After the meeting, LifeSpan also made preparations for Mr. Sharockman’s departure by terminating his access to company bank accounts and credit cards. On December 27, 2011, the LifeSpan human resources department circulated a memorandum announcing Mr. Sharockman’s departure from LifeSpan. In response to the departure memorandum, Mr. Sharockman sent an email to the CEO and chief operating officer stating that he had not previously resigned but that he was in fact providing notice of his resignation as of that date. The CEO responded to the email stating that she had understood from their prior conversation that he had another job offer and had resigned.

Two years later, Mr. Sharockman commenced an action against LifeSpan, claiming breach of contract and failure to pay wages. Among the claims made by Mr. Sharockman was that he had not resigned and instead LifeSpan had terminated him without cause. Therefore, he claimed, he was entitled to be paid for the remainder of the contract term under his employment agreement. The trial court rejected Mr. Sharockman’s claims and granted summary judgment in favor of LifeSpan.

On appeal, the appellate court affirmed the judgment in favor of LifeSpan. The court explained that Mr. Sharockman’s employment agreement required LifeSpan to pay Mr. Sharockman for the third year of the term if he was (1) terminated without cause or (2) resigned after giving notice of a breach of the employment agreement, if the breach was not cured within 30 days of the notice.

Since Mr. Sharockman sent LifeSpan notice of the breach on December 12, 2011, and his separation from employment occurred before December 31, 2011, Mr. Sharockman conceded that the notice and cure provision was never triggered. However, on appeal, Mr. Sharockman continued to assert that he was terminated without cause because he did not resign his employment before the departure memorandum was circulated.

The court of appeals upheld the trial court’s conclusion that LifeSpan did not terminate Mr. Sharockman. As support for this conclusion, the court relied on Mr. Sharockman’s own words: specifically, the email he sent following the departure memorandum, in which he expressly resigned his position with LifeSpan. The court concluded that it didn’t matter whether Mr. Sharockman had resigned in his meeting with the CEO, because he had expressly resigned his position in his email. Because Mr. Sharockman resigned, rather than being terminated, LifeSpan was not obligated to pay him for the final year of the employment agreement.

Had Mr. Sharockman thought carefully about the implications for his employment agreement, he likely would not have sent his email affirming his resignation. And if the trial court and court of appeals had not been able to rely on Mr. Sharockman’s own writing, the case may well have gone to a jury to decide who was telling the truth about Mr. Sharockman’s purported resignation in his meeting with the CEO. As the Sharockman decision shows, when ending an employment relationship, employers and employees should consider how the means of ending the relationship will affect their obligations to each other, not just their feelings of hurt or disappointment.